Economy
Australia’s central bank delivers 3rd straight rate hike
Australia’s central bank hiked interest rates for a third time this year on Tuesday, returning borrowing costs to post-pandemic highs and warning of sticky inflation as the conflict in the Middle East led to a global oil shock.
Governor Michele Bullock said the board now judged monetary policy to be slightly restrictive after a burst of rate hikes this year, allowing the board to pause and gauge inflation and growth risks linked to war.
Wrapping up the May policy meeting, the Reserve Bank of Australia (RBA) raised its main cash rate by 25 basis points to 4.35%, undoing all of the three rate cuts made in 2025. The board voted 8-1 in favor of the hike, a hawkish shift from March’s narrow 5-4 split.
Bullock said there were early signs that firms were looking to pass through rising costs to customers, and that three rate hikes should help keep inflation expectations anchored.
“We feel we are now in a position where we have got space to be alert to both sides of the risks, the inflation and potential risks to the downside, if the war continues,” she said at the post-decision press briefing.
The Australian dollar slipped 0.3% to $0.7145, while three-year government bond yields fell 5 basis points to 4.625%, the lowest in two weeks, as markets scaled back the odds of more near-term rate hikes.
Swaps imply around a 15% chance of a further move in June. An increase to 4.60% by September is about fully priced, which would be the highest since late 2011.
“Higher fuel prices are adding to inflation and there are indications that this is likely to have second-round effects on prices for goods and services more broadly,” the board said in a statement.
“The board assessed that inflation is likely to remain above target for some time and that the risks remain tilted to the upside, including to inflation expectations.”
Yet the RBA also emphasized that having raised the cash rate three times, “monetary policy is well placed to respond to developments,” hinting it might pause for now.
Inflation had already climbed to 4.6% in March, driven by higher fuel costs, while the closely watched core measure remained uncomfortably above the RBA’s 2%-3% target band.
The oil price spike triggered by the U.S.-Israeli war on Iran saw the RBA sharply raise its forecasts for inflation this year, tipping a peak near 5% while cutting the outlook for economic growth and employment.
Hormuz risk
“Today, the Board showed a clear preference to prioritize the price stability mandate. There is a strong message in this outcome, meaning that risks are biased towards a further adjustment in the cash rate,” said Sally Auld, chief economist at the National Australia Bank.
“For now, we have the RBA on hold at 4.35%.”
The RBA charted a softer course than its global peers during the post-pandemic inflation surge, prioritizing hard-won gains in the labor market over rapid tightening. Interest rates peaked at 4.35% early last year before three cuts pulled them back to 3.6%.
That gamble backfired in the second half of the year as inflation reignited, a risk now supercharged by the Iran war and a fresh global energy shock. The U.S. and Iran launched new attacks in the Gulf on Monday, lifting Brent crude futures to $114 a barrel, up over 50% from pre-conflict levels.
Business and consumer confidence in Australia crashed on fears that the war may tip the economy into a recession, while the housing market has lost steam amid higher borrowing costs and geopolitical uncertainty.
The labor market remains the outlier, with the jobless rate holding at a historic low of 4.3%.
The outlook hinges on the Strait of Hormuz, a vital route for about 20% of global oil flows, which Iran has effectively closed since the war began in late February.
“By August – in the absence of a rapid resolution to the conflict in the Middle East and a resumption of oil flows – we expect the activity data in Australia to be looking sufficiently soft to keep the RBA on hold,” said Adam Boyton, head of Australian economics at ANZ.
Exports from Türkiye’s defense and aerospace sectors have exceeded $2.8 billion in the first four months of the year, jumping 28% from the same period last year, a top official said Wednesday.
Speaking to reporters at the SAHA 2026 International Defense and Aerospace Exhibition in Istanbul, Trade Minister Ömer Bolat said exports had climbed from $248 million over the past two decades to $10.05 billion last year alone.
“This year, we have a 28% increase in the first four months. We topped $2.8 billion,” Bolat said, recalling that last year the sector passed the $10 billion export threshold for the first time.
The defense fair, organized by SAHA Istanbul, Türkiye’s and Europe’s largest industrial cluster in the defense, aviation and space sectors, is being held at a wide area of Istanbul Expo Center and it runs through Saturday.
Bolat described SAHA 2026 as one of Türkiye’s most advanced fairs in industry and technology, saying the event showcases the country’s strongest products in industry, technology, science and telecommunications.
He said the fair, which has “prestigious fair” status supported by the Trade Ministry, has filled its entire exhibition area of 100,000 square meters (over 1 million square feet).
Some 8,000 professional visitors from abroad registered for the event, while more than 100 delegations are holding procurement talks, according to Bolat.
“More than $10 billion in contracts are expected to be signed by our companies. This is a very valuable fair for the Turkish industry, defense industry, and aviation industry,” he furthered.
Strong demand for Turkish products
Bolat also pointed out that Türkiye’s defense and aviation ecosystem includes 3,500 companies and nearly 100,000 highly qualified workers and research and development personnel.
He added that the sector “has a project backlog worth $100 billion,” while it “contributes $20 billion to Türkiye’s national income.”
“Major brand organizations in the main structure have thousands of companies below them producing products. In this sense, Türkiye is ensuring a brain gain for our country from abroad,” he said.
Bolat also said there is strong foreign demand for Turkish defense and aviation products.
He said he met Stephen Fuhr, Canada’s minister of state for defense procurement, who visited the fair with a strong delegation. “He expressed they came here to increase cooperation with Türkiye in defense and aviation, both at the government level and company level,” he added.
Military officials, procurement executives, and experts from many countries are attending the fair, Bolat suggested.
Moreover, he said Türkiye exported $3.7 billion worth of rockets, missiles, and smart munitions last year, as well as $2.1 billion worth of unmanned aerial vehicles (UAVs).
Türkiye is also strong in land vehicles and has made progress in areas including air defense systems and “Steel Dome”-type systems, Bolat said.
The fuel tax relief mechanism Türkiye introduced to cushion households and businesses from an energy shock triggered by the Middle East conflict has cost the government around $2 billion in its first two months of implementation, a senior official said on Tuesday.
Energy prices spiraled following U.S.-Israeli attacks on Iran, which prompted a near-total closure of the Strait of Hormuz, where 20% of the world’s oil normally flows. Stalled shipments through the waterway have sent prices skyrocketing far beyond the region and raised the cost of food and a wide array of other products.
To mitigate the impact, Turkish authorities implemented a “sliding scale” system, which adjusts the special consumption tax (OTV) on fuel products according to changes in oil prices to prevent excessive price rises.
Treasury and Finance Minister Mehmet Şimşek said the mechanism had limited the pass-through from higher crude oil prices to domestic fuel prices and helped contain inflation.
“The cost to us in the first two months was TL 90 billion. This is a significant figure, around $2 billion,” Şimşek told the public broadcaster TRT Haber.
“If similar conditions persist throughout the year, the impact would be around TL 600 billion, corresponding to roughly $13 billion-$14 billion at current prices,” he said.
Without the measure, however, Şimşek said inflation would have risen much more sharply.
“Had we not activated the sliding scale mechanism, the increase in inflation would have been far more dramatic. The current reflection is not even at one-third. Therefore, we have also limited the rise in inflation,” he said.
The pricing pressures from the fallout of the war still impacted Türkiye’s inflation, which rose to 32.37% in April, the highest measure since October 2025. Şimşek said the rise would be temporary.
Had it not been for the sliding scale system, diesel prices in Türkiye could have reached as high as TL 90 per liter, compared with below TL 73 now, while gasoline prices would have been around TL 79 lira instead of roughly TL 65, the minister noted.
“A significant portion of the shock has not been passed on to our citizens, companies, industrialists or small businesses,” Şimşek said.
Effects ‘manageable’
Türkiye is a major energy importer that neighbors Iran and is among the most exposed emerging market economies to the global energy price surge. But officials have touted Türkiye’s “manageable” 10% dependence on Middle East oil and the country’s protective diversification steps.
Şimşek said Türkiye was facing the effects of the supply shock, though he stressed the country was not facing an energy supply disruption.
“The increase in fuel prices will cause an additional deficit in the external balance. It has an inflationary effect. All of these are facts. We are not on a separate planet,” he noted.
“There is a very large supply shock in the world, and this will affect Türkiye.”
Every 10% increase in oil prices directly adds around 1.1 percentage points to inflation and lifts the current account deficit by $3 billion-$4 billion, while a similar rise in natural gas prices could add another $5 billion, said Şimşek.
“If oil rises to $95 from $65, that would create an additional deficit of around $15 billion,” he said. “This doesn’t include tourism, but let me say this clearly: the effects will be manageable.”
Şimşek said the government’s improved fiscal position had enabled it to absorb part of the shock.
“Had we not restored fiscal discipline, implemented savings measures and controlled spending, we would not have had the ability to do this,” he said.
He reiterated that the government’s top priority remained disinflation and tackling the cost of living.
“We want to preserve the disinflation process at all costs,” Simsek said. “There is no hesitation on this matter.”
He said Türkiye had initially expected inflation to fall to around or below 20% this year, but the latest energy shock could keep it somewhat higher.
He said the budget deficit could rise from 3.5% to 4% of gross domestic product, while a 1-2 percentage point increase in the current account deficit-to-GDP ratio would remain manageable.
Simsek said Türkiye had entered the regional crisis from a stronger position, citing a significant buildup in foreign exchange reserves since mid-2023.
“We have accumulated very substantial reserves, which also helped us get through this shock without really feeling its impact,” he noted.
“This year, we are aiming to focus strongly and bring inflation back down to the 20s.”
Turkish drone powerhouse Baykar on Wednesday signed an agreement to sell its Bayraktar Kızılelma unmanned combat aircraft to Indonesia.
The deal marks the first export contract for what Baykar CEO Haluk Bayraktar said is one of the world’s first unmanned fighter jet technologies.
It covers a delivery of a fleet of 12 Kızılelma aircraft, starting in 2028. The agreement also includes an additional option for four more fleets, Bayraktar told the signing ceremony at the SAHA 2026 defense fair.
Alongside system procurement, the deal also includes the establishment in Indonesia of production and maintenance centers.
The agreement was signed by Bayraktar and Norman Joesoef, chair of Indonesian defense group Republikorp.
Bayraktar described the agreement as a “historic” deal for both Baykar and Türkiye’s defense industry.
“Bayraktar Kızılelma, one of the world’s first unmanned fighter jet technologies, made its first flight in 2022. Since then, intensive flight activities have continued,” he said.
Baykar aims to place Kızılelma into service for Türkiye this year, he added.
Kızılelma would be the third Baykar platform Indonesia will add to its portfolio following earlier deals for Bayraktar Akıncı and TB2 drones.
Republikorp’s Joesoef said the company looked forward to continuing cooperation between the two sides.
Kızılelma will stand out with its low radar visibility and high maneuverability. With a maximum takeoff weight of 8.5 tons and a payload capacity of 1.5 tons, the aircraft can preserve its stealth characteristics thanks to its internal weapons bay.
The jet is said to be the first unmanned combat aircraft in the history of aviation to shoot down an aerial target detected by its own radar system (AESA) using its own domestically produced air-to-air missile.
With AI-supported autonomous formation flight and smart fleet operations, it is seen shaping the future doctrine of aerial warfare.
Separately at the SAHA fair, Turkish defense electronics company Aselsan signed two contracts with Indonesian authorities covering the use of its technologies by Indonesia’s military.
The agreements include unmanned naval vehicle payloads for the Indonesian Navy and mission-critical communication systems for the Indonesian Armed Forces.
Oil prices tumbled and stocks surged on Wednesday after a report said the White House believed it was nearing a memorandum to end the war with Iran, while enthusiasm for AI-driven trades also gathered pace.
The news outlet Axios reported that the U.S. expected Iranian responses on several key points in the next 48 hours. A Pakistani source involved in the peace efforts confirmed the report to Reuters on Wednesday.
Brent crude, the global benchmark, plunged 10.6% to $98.20 per barrel, its lowest in two weeks.
The war has all but closed the Strait of Hormuz, through which 20% of global energy normally flows, but Axios reported the deal would involve both sides lifting restrictions around transit through the waterway.
Europe’s STOXX 600 index extended its gains and was last up 2.6% after climbing 0.7% a day earlier. MSCI’s All-Country World Index climbed 0.9% to a fresh record.
Futures for the U.S. S&P 500 rose 0.9%, a day after the index rallied 0.8% to hit its latest record high, driven by strong company earnings and excitement about artificial intelligence.
“A pretty punchy move on the back of those stories, almost as if the market has shifted into ‘buy everything’ mode,” said Michael Brown, senior research strategist at Pepperstone.
“It’s difficult to say how close to a deal we might be,” he said. “Market participants, though, aren’t going to wait for confirmation of good news and are essentially now front-running a positive outcome.”
Caution
The U.S. dollar, which has been a safe haven during the Iran war, dropped 0.55% against its major peers, reflecting investor hopes for a possible deal.
Meanwhile, yields on government bonds fell along with oil prices as traders dialled down their bets on central bank rate hikes.
The 10-year U.S. Treasury yield fell 7 basis points to 4.35%.
Although stocks have rallied sharply, ructions in energy and bond markets could weigh on global growth. Oil prices are around 35% higher than they were when the conflict began in late February, while 10-year Treasury yields are around 40 bps higher.
Analysts also cautioned that a peace deal is far from certain.
“The probability of disappointment looms,” said Ipek Özkardeskaya, senior analyst at Swissquote, “suggesting that a part of the gains could be retraced.”
AI rally boosts stocks
The broadest index of Asia-Pacific shares outside Japan jumped 3.2%.
Samsung Electronics surged 14%, topping a $1 trillion market value and overtaking Berkshire Hathaway.
“Due to the capex spend we are seeing from (AI) hyperscalers in the U.S., the earnings growth trajectory for sectors such as semiconductors, tech hardware, industrials and materials in Asia exceeds anything I have seen in a long time,” said Rushil Khanna, head of equity investments for Asia at Ostrum, an affiliate of Natixis Investment Managers.
In the U.S., shares in chipmaker Advanced Micro Devices jumped 16% in extended trading as the company forecast second-quarter revenue above Wall Street expectations on Tuesday, helping drive AI enthusiasm across markets.
Elsewhere in foreign exchange markets, the yen strengthened sharply, gaining as much as 1.8% to 155 against the dollar as traders remained on the lookout for fresh intervention by authorities in Tokyo in support of the beleaguered currency.
Aselsan, one of Türkiye’s top defense firms, will accelerate deliveries of the components it is producing for the country’s integrated, multilayered “Steel Dome” air defense system, according to the company’s general manager.
NATO member Türkiye, which in recent years has significantly ramped up its defense industry production and reduced dependence on external suppliers, first announced plans to build its Steel Dome in July 2024.
Speaking at the SAHA 2026 defense show in Istanbul, Aselsan General Manager Ahmet Akyol said the company would increase by 50% the delivery of products as part of the Steel Dome, adding they aimed to deliver more than 150 different components in 2026.
He said the parts to be delivered by Aselsan included early warning radars, electronic combat and defense systems and payloads, adding that the Steel Dome parts would comprise nearly a third of the firm’s portfolio in the coming years.
The architecture crowns years of investments that have helped Türkiye transform from a nation heavily reliant on equipment from abroad to one where homegrown systems meet almost all of its defense industry needs.
It foresees integration of locally developed missile batteries, radars, electro-optical sensors, communications modules and command-and-control centers.
It aims to provide integrated protection against low, medium and high-altitude threats through land-based and sea-based air defense platforms and sensors developed at home.
Last year, Turkish defense companies signed $6.5 billion (TL 293.95 billion) worth of contracts to reinforce and develop the Steel Dome. Of those, Akyol said some $3.2 billion worth belonged to Aselsan, adding the company would also work on systems to counter drones.
“At the moment, drone prevention is an issue everywhere in the world. Don’t look at this only as defense; it is necessary for industrial security. Drones are a threat even in regions with no problems,” Akyol told Reuters.
Akyol also said Aselsan would aim to speed up the company’s export-oriented growth in 2026. Aselsan hit a TL 2 trillion market cap, extending its lead as the most valuable company on Istanbul’s stock exchange.
“We are aiming to close the year with a higher number of export contracts than last year. Our export order growth and delivery goal is higher than double-digit growth for Aselsan as a whole,” he said.
Components for the Steel Dome also form the backbone of the parts in Türkiye’s indigenously built navy fleet, with currently more than 40 ships under construction.
Akyol added that Aselsan was a supplier for shipyards in Asia and Europe and that cooperation would increase in the coming years.
Türkiye’s defense exports rose about 48% year-over-year in 2025 to a record of more than $10 billion. The goal is to lift the figure to $11 billion, placing Türkiye among the world’s top 10 biggest defense exporters, according to officials.
Türkiye is emerging as a notable player in efforts to diversify global critical minerals supply chains, backed by its resource base and strategic location, according to a senior official from the Organisation for Economic Co-operation and Development (OECD).
“Türkiye is already an important player in critical minerals,” Marion Jansen, the director of the Trade and Agriculture Directorate at OECD, told Anadolu Agency (AA) on the sidelines of the OECD Critical Minerals Forum in Istanbul.
Jansen highlighted Türkiye’s strength in borates as a major global supplier and noted that the country also holds significant reserves of rare earth elements (REEs). “So this is one of the countries where more investment could take place.”
She noted that Türkiye could play an important role in diversifying critical minerals supply chains and added that its geographic position makes it well placed to facilitate the logistics and transit of critical minerals from different regions.
“Türkiye is situated between Asia, Africa and Europe. This is a fantastic trading hub,” she said.
The country established the Rare Earth Elements Research Institute in 2020 to explore the potential of critical minerals and, in 2022, discovered the world’s second-largest rare earth element reserve in the central province of Eskişehir, giving further momentum to its development in this area.
Risks drive push for diversification
As Türkiye is part of the OECD’s export credit arrangement, it has a role in coordinated international financing efforts. “Türkiye has a voice in this joint collaboration around export credit financing,” Jansen said.
She noted that Türkiye is well integrated into global markets and has the potential to expand its role further. “The potential for Türkiye to play an even bigger role definitely exists,” she added.
Jansen said rising interest in financing the green transition has brought structural risks in critical minerals markets into sharper focus. “The key aspect is diversification.”
As demand for minerals critical to the energy transition, digitalization and defense industries rises, supply remains concentrated among a limited number of countries.
Many critical mineral markets are highly concentrated, with some cases where a single country accounts for up to 90% of global supply, either in extraction or processing.
“This is not good,” she said, warning that excessive concentration distorts markets and prevents normal price formation.
She added that high entry barriers limit new participants, while dominant players may restrict access to materials. “So diversification is important,” she noted.
Jansen stressed that financing mining and processing projects will be essential to improving supply diversity, pointing to OECD’s work in this area, including through export credit mechanisms.
Export restrictions threaten multilateral trade system
Jansen also warned about the increasing use of export restrictions globally.
According to OECD data, export restrictions have increased steadily over the past 15 years, with a notable rise in the most severe measures. The use of such measures increased nearly fivefold between 2009 and 2024 and remains at historically high levels.
“It becomes nearly acceptable to use it and that’s not good news for the multilateral trading system at all,” she said.
Export prohibitions are “used more and more frequently, and this is the third piece of bad news for the trading system of critical raw materials,” she explained.
Investment faces long-term uncertainty
Investment in critical minerals remains challenging due to long project timelines and market uncertainty, Jansen said.
“Investing in this sector is a long-term project … the money has to be invested for the long run,” she said.
She noted that investors seek clarity on returns and price conditions, but risks are higher in concentrated markets.
“If market conditions are not competitive … the risk that prices will be volatile is real,” she said.
Jansen added that addressing these challenges will be key to unlocking more investment in the sector.
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